S&P, Dow, Nasdaq futures rally as yields continue to decline


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Stock index futures point to a slightly higher open Monday, with investors shaking off China weakness and still leaning to the possibility of a more dovish Fed.

S&P futures (SPX) +1%, Dow futures (INDU) +1% and Nasdaq 100 futures (NDX:IND) +0.6% are higher after being in the red most of the overnight session.

The 10-year Treasury yield (US10Y) is down 5 basis points to 4.16%. The 2-year yield is down 3 basis points to 4.46%.

“As we start a new week where we’re now in the Fed blackout period ahead of next week’s FOMC, we’re perhaps starting the 6th attempt this year at the Fed pivot trade,” Deutsche Bank’s Jim Reid said. “This only started on Friday as well connected Nick Timiraos suggested that while a 75bps hike at the Fed’s next meeting was set to go ahead, officials were also likely to discuss ‘whether and how to signal plans to approve a smaller increase in December.'”

“Whether this gets any further than the previous failed attempts to reprice markets only time will tell but with markets pricing in a terminal rate of over 5% prior to this, at least this is the first one that starts from anything vaguely resembling a realistic starting point given where inflation is. San Fran Fed President Daly also said on Friday that the Fed should start planning for a shift down in the pace of hikes but added that they are not there yet.”

The U.S. dollar (DXY) is higher foillowing last week’s selloff.

“The dollar is supported a strong economy hawkish central bank, and favorable terms of trade,” SocGen strategist Kit Juckes said. “But the market is short treasuries, long dollars.”

“European currencies’ Achilles Heel is the tail-risk coming from either a cold winter or an ugly twisty in the war in Ukraine, but the base case of soft growth is priced in,” Juckwa sais. “The yen has no Achilles heel, just a gaping rate differential with the US and a central bank that refuses to think about joining the global tightening party.”

“The Chinese leadership is sticking to zero-covid policies and in the UK, the Government is lurching towards stability, but also towards considerable fiscal austerity. This morning’s PMI data confirm that the economy is in recession.”

Among active issues, Tesla is lower after it cut prices on its vehicles in China.